Commercial Instruments: Bank Guarantee and Letter of Credit

17 Pages Posted: 30 Jun 2014 Last revised: 1 Jul 2014

Date Written: June 28, 2014


The paper examines the nature and scope of bank guarantee system and letter of credit in India. This paper is a doctrinal study which covers the law relating to the bank guarantees particularly embodied in the Indian Contract Act 1872, highlights the economic functions and benefits of the bank, explains the various types of guarantees issued by the banks in India. This paper further discusses the nature, scope, details, structure and troubles of a letter of credit. It highlights the imbalance of the rights and duties of the parties in a letter of credit transaction by emphasising deficiencies in the letters of credit system. It discusses how the risk of the innocent buyer has increased and very often the buyer is paying for the goods he had not contracted for and also throws light on the independence principle and the doctrine of documentary compliance.

Keywords: Bank Guarantee, Letter of Credit, Contract, Surety, Creditor, Principal Debtor, Bank

Suggested Citation

Jain, Sankalp, Commercial Instruments: Bank Guarantee and Letter of Credit (June 28, 2014). Available at SSRN: or

Sankalp Jain (Contact Author)

Delhi High Court ( email )

Delhi High Court
New Delhi, ND Delhi 110001

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